Indian PM rules out repeat of 1991 economic crisis

An Indian woman counts rupees to pay a vendor at a local market in New Delhi on August 17, 2013. India's premier ruled out Saturday any suggestion the country could suffer a repeat of its 1991 balance-of-payments crisis as it grapples with a plunging rupee and a huge trade gap.
(AFP)

NEW DELHI (AFP) – India's premier ruled out Saturday any suggestion the country could suffer a repeat of its 1991 balance-of-payments crisis as it grapples with a plunging rupee and a huge trade gap.

Prime Minister Manmohan Singh spoke a day after India's currency hit a new low of 62.03 rupees to the dollar and stocks posted their sharpest single-day fall in nearly two years.

Singh was finance minister in 1991 and was credited with overcoming the deep economic crisis.

"There is no question of going back to the 1991 crisis," Singh told reporters in New Delhi in televised remarks at a book launch.

In 1991, hard currency reserves had sunk so low that India was on the brink of defaulting on its foreign loans.

Singh said the country only had foreign exchange reserves for 15 days in 1991.

"Now we have reserves of six to seven months. So there is no comparison. And no question of going back to the 1991 crisis," he said.

India still has painful memories of 1991, when New Delhi had to pledge its gold reserves with the International Monetary Fund to fund its debt.

To get India out of its economic morass, Singh unleashed sweeping change, beginning the process of abolishing what was known as the "licence raj", a system of economic management ruled by government monopolies, quotas and permits that dictated what firms could make.

Since June 1 this year, overseas funds have pulled out a combined $11.58 billion in equities and debt from India's markets over concerns about a sharply slowing economy, regulatory data shows.

To curb the rupee's fall, Indian policymakers have pushed up short-term interest rates and announced plans to allow state firms to raise funds abroad and curb gold imports.

Earlier this week, the central bank also tightened controls on the amount of money local firms and individuals can send abroad.

Asked about the record current account deficit -- the broadest measure of trade -- Singh acknowledged the problem and said gold imports needed to be further curbed.

Gold is the second-largest contributor to the current account deficit after oil.

"We seem to be investing a lot in unproductive assets," he noted.

Gold is hugely popular in India, especially during religious festivals and wedding seasons, and is also bought as a hedge against inflation.

India's woes have been exacerbated by signals the US could soon slow its stimulus drive that prompted big investment flows to emerging markets, and homegrown graft scandals that have virtually paralysed government policymaking.

Singh added that he hoped for "fresh thinking" at the central bank when its new governor Raghuram Rajan takes over in September.

"The time has come to look at the possibilities and limitations of the monetary policy in a globalised economy," he said.

India's finance ministry is reported to regard the current central bank leadership as overly conservative in its focus on inflation at the expense of economic growth.

Rajan is a former International Monetary Fund chief economist and is famed for predicting the 2008 global financial crisis.